Collinson FX: April 17: US leads Global growth
by Collinson FX 16 Apr 2018 16:30 PDT
17 April 2018
Bay of Islands Sailing Week, January 2018 © Richard Gladwell
Collinson FX: April 17:
A strong open to equity market trade, confirmed an endorsement of the US Allies military strike on Syria and strong US Corporate earnings. The US military strike was described by the Administration as a 'justified, legitimate and proportionate response'! The general consensus appears to confirm that this is within tolerance limits.
US Retail Sales moved back in to positive territory, rising 0.6%, while NAHB Housing was steady. The Empire State Manufacturing Index fell back to 15.8, but could be a temporary setback, as housing has been strong. Economic data continues to impress, in the US, while earnings are reflecting the massive corporate tax cuts.
The big issues driving markets are the Geo-Political issues, lead by Global Trade wars and military threats and actions. The Trump administration has shown control on the Geo-Political front, while displaying successful negotiation techniques on the Global Trade front. The success has lead to free-flow of currencies, with the EUR trading 1.2380, while the GBP has hit 1.4320.
Commodity currencies are dependent on demand and have received a recent boost from the global trade rhetoric and results. The NZD trades above 0.7350, while the AUD trades 0.7777, reflecting the strong benefits of global demand and trade.
Collinson FX: April 14: Over achievement priced in
US corporate earnings are underway and are beating expectations but the over-achievement is priced in!
Markets took the strong numbers in their stride and equities drifted lower after a bullish week. The important University of Michigan Sentiment report slipped of record levels but remains unparalleled. The US lead Coalition continues to defer possible action in Syria, but this remains a live grenade, which could trigger strong market reaction.
Chinese trade data confirmed a sharp turnaround, with Exports contracting 9.8%, while Imports slipped 5.9%. This may be an isolated reversal, although President Xi has indicated reform in trade with the USA. Commodity demand remains strong and the associated currencies profit, with the AUD holding 0.7750, while the NZD drifted back to 0.7350.
The coming week has a slew of data from US Retail Sales and Housing, to inflation/growth numbers from Europe. RBA Minutes and the Fed's Biege Book will give important insights in to Central Bank views of the US, Australian and Global economic conditions. The economic statistic releases may well be overwhelmed by breaking Geo-Political events?!
Collinson FX: April 13: Tax cuts boost US profits
US earnings began a new season, beating already high expectations, as tax cuts embellish bottom lines. The huge corporate tax cuts are flooding through corporate earnings, driving record employment and finally putting upward pressure on wages. Trump tweeted that military action against Syria may not be imminent and this allowed a relief rally on equity markets.
European Industrial Production contracted, disappointing markets and arresting recent progress of the single currency. The EUR fell back to 1.2330, while the GBP surged to 1.4220, reflecting the different economic space they occupy. Commodity prices have been higher, although the recent surge on Gold and Oil lost momentum, with the Syrian news. The NZD remains strong, moving towards 0.7400, while the AUD trades around 0.7750.
Geo-Political events have overtaken markets although earnings in the US will have influence. The soft Dollar reflects the confidence markets are experiencing, but the bullish sentiment and growth prospects promise higher inflationary pressures and interest rates. This should drive the Dollar higher in the medium term.
Collinson FX: April 12: Trump overcomes rhetorical crises
Trade fears subsided and were overwhelmed by the Syrian conflict. The drama continues, as the Trump Administration moves from one crisis to the next, attacking them with his own distinctive approach. The trade crises were rhetorical and seems to be working. He threatened huge tariffs on China unless they met his demands for reciprocal trade and cease the IP theft. President Xi has indicated that China will move in this direction. This is a clear victory and justifies the negotiations. Other 'bad actors' now will have to toe the line or face the clear consequences.
Trump has moved on to the Syrian crises. He has taunted Russia and Syria in response to a Russian threat to 'shoot down US missiles', by tweeting 'get ready!'. It appears the US, along with key Allies, will launch a substantive military attack. This will be an overwhelming response to the recent chemical attack.
Meanwhile markets await, what is expected to be a strong earnings season, enhanced by the corporate tax cuts. The Fed minutes were released and all members of the committee agreed the US economy is growing at a strong pace. The FOMC have recognised inflationary pressures and look to be confirming further rate rises. The Dollar was soft but stable, with the EUR trading 1.2350, while the GBP held 1.4170.
Trade exposed commodity currencies enjoyed the trade war relief. The NZD trades around 0.7350, while the AUD holds around 0.7750. Oil has spiked and commodity prices have regained some mojo. Markets look set to be dominated by Geo-Political events, in particular the Syrian crises, while trade remains a clear and present danger to daily volatility.
Collinson FX: April 11: China makes right noises
US equities rallied strongly after China's President Xi made conciliatory announcements regarding trade with the rest of the world. China has indicated it will reduce tariffs on automobiles and consumer products. China has further indicated, that it will recognise the legal standing of Intellectual Property (IP), thereby addressing the Billions of Dollars in IP stolen each year. This is a recognition of the Trump administrations attempt to balance the global playing field, address incomprehensible trade deficits and protect IP. The reciprocal trade notion looks to be accepted more widely, as Trump renegotiated, on a bilateral basis. It will be followed by other 'bad actors' as the pressure of tariffs are leveled on other recalcitrants.
Equities soared, as they did the previous day, although the rally has not been interrupted by other news. Yesterday's rally was killed by the announcement of the raid on Trumps lawyer, Michael Cohen, and the seizure of attorney-client privilege communications. This storm continues. The President is also considering a response to an alleged chemical weapons attack in Syria, which may dominate headlines, in the coming days.
The resurgent markets allowed the flight away from the Dollar to continue. The EUR rallied to 1.2350, while the GBP approaches 1.4200. The Yen is bucking the trend, trading 107.20, as Japan's trading conditions come under the spotlight. Commodity currencies have taken full advantage of the flagging reserve, with the AUD jumping to 0.7750, while the NZD breaks above 0.7350. The US Dollar has reflected the easing of pressure from the global trade wars, allowing heavily trade dependent commodity based currencies to thrive.
Local economic data will assume a more constructive role in directing currencies, when dominant geo-political issues slow in their severity and frequency. This is not likely to occur while Trump is President, although major statistics reflecting long term budget positions, will influence currencies. Look at local budgets and the expression of governmental policies, which will determine fiscal trends, reflecting individual countries position in the world's economy.
Collinson FX: April 10: Earnings season kicks off
US equity markets rebounded strongly, continuing the extreme swings experienced of late, triggered by threatened global trade wars. Trump has upped the anti, threatening increasing tariffs until China addresses the imbalance and theft of intellectual property. Trump tweeted he required reciprocal taxes to be applied between trading nations. Treasury Secretary, Steve Mnuchin, confirmed a trade war was possible but not likely.
German trade data confirmed a contraction, with falls in both Exports and Imports, contradicting recent momentum. The EUR jumped to 1.2300, while the GBP consolidated above 1.4100, as trade war fears subsided allowing the Dollar to drift. The weakness in the reserve allowed commodity currencies to regain some lost ground. The AUD looks to regain 0.7700, while the NZD pushed back to 0.7300, boosted by trade rhetoric.
The earnings season begins this week and expectations are high as US Tax cuts flow through to corporate earnings. If US company earnings show anticipated strength, then equity markets should reflect this, although trade war threats remain.
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